Never underestimate the power of small financial victories.
Sometimes you make small changes, like paying an extra $20 each month towards your maxed out credit cards doesn’t always feel like it’s making a difference. After all, what good is $20 bucks a month when you’re accruing hundreds of dollars in interest each month.
A larger impact than you think.
I’ve explored the power of my family’s personal small victories, and how they added up to big wins before, but today I want to really bring it home.
2017 is just beginning, and this is the perfect time to take charge by making some very small, highly impactful changes – these will make a bigger impact than you know.
Fair warning: this article is looong. Currently, it’s over 4,000 words, and I’m assuming final edits will make it even longer as I fully flesh out everything in here.
So take your time with this, maybe print out the workbook at the end, then bookmark this to come back to it.
Bottom line: don’t try to do everything at once. Pick the small changes that are right for you and your family and execute them.
And if they aren’t all right, that’s ok too!
The biggest thing I want to get across is that you make changes, and that you start making them today!
Meet With Your Spouse
Before you go running amuck, making financial decisions all on your own, it’s important to stop and loop in your spouse.
Your spouse may be really involved in managing the family’s finances, care very little, or land somewhere in between. In each case, it’s important to keep them informed:
- The Involved Spouse: If you have an involved spouse, then your meeting can be fairly long without them losing interest. Work through your budget together, talk about your spending, and work together to set goals for 2017.
- The Hands Off Spouse: If your spouse doesn’t like dealing with the household finances, it’s best to keep the meeting short. Have the budget and spending already prepared and just give them the big picture.
- The Somewhat Involved Spouse: For a spouse who likes to be a little involved, give them the big picture, and involve them in the part of household financial management that they actually like. Be prepared to cut the meeting off if their attention starts to wane.
Whichever method suits you best, schedule it!
Make time in your schedule, write it on the calendar, and whip out the kids’ favorite cartoon to keep them busy.
This meeting doesn’t have to take long, but it does need to held above everything else while it’s happening.
What to discuss:
- Did your spending feel excessive or frugal in 2016?
- Excessive: Find 2-3 areas where you can comfortably cut back, then write down action steps to reach them.
- Frugal: Celebrate the victory! Then, talk about what budget lines made you feel unhappy because they were so restrictive.
- How was the actual act of budgeting? Time consuming, or easy?
- Time-Consuming: Build a better budget! (<<<— Click the link to learn how) I’ll get into this in a minute.
- Easy: Congrats on finding a budgeting solution that works for you! Plan to continue using it in 2017.
- How successfully did you stick to your budget?
- Successful: Success is hard to determine, but the previous 2 questions help to clue you in on this. A successful budget is key to succeeding in managing your finances.
- Unsuccessful: Consistently going over budget, setting budgets that are too restrictive and fighting about money are all signs that your budget just isn’t working or your spending is out of control.
- How frequently were you on the same page financially?
- 75% of the time or more: You are one half of a rockstar team! No one is on the same page all the time, so you’re doing great!
- 50% of the time or more: You’ve got a good foundation, but there’s room for improvement.
- 50% of the time or less: It’s probably time to reevaluate your financial methodology in 2017.
Revisit Your Budget
The New Year represents not only a clean slate for your goals, health, and happiness, it is an awesome time to give your budget a clean slate!
Yep, it’s cliche, but we all get a burst of energy from the new year, and one of the best ways to use it is to shape your financial year.
Here’s how to wipe your budget clean:
First, Figure Your Bare-Bones Budget
A Bare-Bones budget helps keep your finances in line by cutting out excess ruthlessly. Creating one forces you to put your mind into survival mode with your spending and really push yourself to see what cuts can be made.
What Can You Live Without?
Television, a smartphone, excessive shopping, vacations, kids lessons & activities, date nights, movies, eating out, a gym membership and other expenses are certainly nice, but they have no place in your bare bones budget.
If you’re on the fence, cut it.
Your family will probably not be happy if you cut these things right now, but remember that this is a hypothetical scenario. If you ever have to use the bare bones budget, it will be because of extenuating circumstances (job loss, major illness, etc) and you will be MUCH more willing to cut the things everyone loves because you HAVE TO.
Want more idea for what to cut? Read Where to Cut a Too-Tight Budget
What can you reduce?
Some things, like groceries and gas, you cannot cut out completely, but your could take steps to reduce them. Check out the following resources, and then determine how low you can realistically go with each expense line:
- What else?
Is there any savings or passive income you can pull from to make ends meet?
Before you get discouraged, it’s also a good idea to take a peek at your savings and investment accounts to reassure yourself that you do have a backup plan. And, if you have any sort of passive income, you’re in an even better place!
This time of year is perfect for congratulating yourself on how well you’ve done saving, investing, or paying down debt, as well as preparing for worst-case-scenario.
Then, Get Rid of Expenses That Have Crept Up On you
It’s easy to do.
Magazine subscriptions, streaming service, and even fun boxes like Stitch Fix of FabFitFun are all cool to have around, but it’s easy to sign up for some of these things on a trial or reduced-price basis, only to let them continue to run when they get more expensive.
You don’t necessarily HAVE to cancel them, but ask yourself this:
How much value do I get out of (fill in the blank)?
Is it enough that the cost seems worth it to me?
If you’re getting a low value out of those types of expenses, sorry, but it’s time to cancel.
Here are some examples of creeping expenses:
- Subscription boxes
- Meal Delivery
- Television packages
- Gym Memberships
- Clothing subscriptions
- What else?
Next, Look for Restructuring Opportunities
And regardless of your feelings about good debt/bad debt and Dave Ramsey, there are almost always opportunities for savings on interest and monthly payments if you know where to look.
But knowing where to look, and feeling capable of restructuring your debt is where most of us struggle.
It’s understandable, really.
Our complicated banking system, confusing credit scores, and a general lack of knowledge and education on personal finance has contributed to this. Luckily for you, we live in an age fo information. Here are some of the best places to find restructuring + how to make it happen:
Credit Card Debt
In 2016, the average American household had more than $15,000 in credit card, And with interest rates soaring above 15% (to 20% and higher) the debt load these families are carrying is crippling.
However, you can refinance your credit card debt.
I recommend choosing a local credit union to do something tricky like this because you’ll be able to develop personal relationships with the people that will actually do your refinance. If that’s not an option, there are lots of other options like Prosper, Lending Club (add more)
You can also use the equity in your home to refinance credit card debt.
Although this method requires more paperwork (including a home appraisal (link)) and a little more time, your credit doesn’t have to be as good, you can refinance more debt, and your interest rate will generally be lower.
Student debt is at an all-time high, and while you can’t take them back or discharge them through bankruptcy, you CAN refinance.
Once you have a job, you can often refinance your student loan debt through your local bank or credit union. But if those aren’t options, don’t lose hope: online lending sites such as Lending Club and Prosper have made refinancing your student loans easier than ever!
Auto loans are a pain in the rear, especially since your vehicle depreciates by thousands of dollars the moment you drive it off the lot.
Before you decide to refinance your auto loan, you first need to consider whether you have the option to pay it off faster, either by accelerating your payments or pulling money from savings. Auto loans are best when you don’t have them, so if there is any way you skip refinancing and get rid of it altogether, go that route.
But if you’re stuck, with no extra to make higher payments, refinancing is a good way to go.
Your bank or credit union can often help, providing competitive rates and decent terms.
But if you struggle with your debt to income ratio or credit problems, consider trying an online debt consolidation lender (as mentioned above) or doing something as drastic as using the equity in your home to refinance the debt. Again, this option is a worst-case-scenario, but it is an option.
Matt and I have been underwater on vehicle, short on income, and have dealt with credit problems. When that happens, you can want badly to do something positive about your auto loans, but can’t. Just remember that
Your mortgage is a solid, immovable payment, right?
Even though a mortgage is a sort of necessary evil, don’t look at the number in your budget like it can’t be changed – because it can!
Get PMI Removed
One of the simplest way to reduce your monthly payment is to get PMI removed from your mortgage.
PMI is Private Mortgage Insurance: the money you pay each month if you put less than 20% down on your house, either through an FHA mortgage or other government program.
Your PMI could run into the several hundreds of dollars each month – what could you do if you got that back?
Getting PMI off of your payment is simple, in theory: Get your Loan-To-Value Ratio (LTV) to 80% or less. In other words, owe less than 80% of the value of your home.
Get An Appraisal
If property values in your area have increased since you bought the home, you paid well below market value, or you’ve done enough improvements to increase the value of the home, then getting the PMI dropped can be as simple as having your home appraised and then submitting the appraisal to your mortgage company.
Just be sure to check with your mortgage holder before shelling out the $350 for the appraisal, to make sure that there is no fine print you’ll need to meet.
For example: our home appraised at 27% LTV, but there was fine print in our mortgage that required us to pay PMI for 5 years, regardless of the LTV. Even thought that was the case for us – and it might be for you too – there are things that can be done.
Make Improvements to Your Home
If you have cash in the bank and a list of projects you’ve been meaning to do (putting in a new kitchen, expanding the garage, upgrading the bathrooms, etc) then finally doing those improvments could add enough value to your home to get that LTV down the 80%.
Before you do anything drastic, check this calculator to see how much home value you’ll get per dollar spend on different home projects.
For example: our kitchen renovation would have cost $35,000 (had we paid full price!) and given us approximately 74% back in the form of value of our home.
Refinance at a Better Rate
If your lender refuses to drop the PMI because of your loan’s fine print, or you’re paying an astronomical interest rate (at the time of writing, I consider that to be 5% or more) you have the option to refinance.
We absolutely LOVED refinancing our mortgage with our local credit union because of the personalized experience, lower closing costs, and how much less hassle it was. But even though that was our experience, you could refinance at any bank of your choice.
Yes, the process takes time, and you’ll need to provide almost all the same documentation as you did when you bought the house – but the thousands of dollars in interest saved will be WELL worth the hassle.
Check out the calculator at the bottom of this article to find out just how much you could save.
Or Just Move
If push comes to shove, and you just can’t with your mortgage any more, you could also move.
There is absolutely nothing wrong with downsizing, moving to reduce taxes, or even heading back into an apartment.
A friend of ours recently decided to downsize, and because their children are older they sat them down and explain to them that their rent had skyrocketed, and that since they were never at the house anyway (always running around doing kids activities) they wanted to downsize. They explained that the move would mean smaller bedrooms, but they could all still continue doing all the same activities, and even have some money to do more fun things!
And you know what?
Kids are so practical! These kids were no exception, and they agreed.
Personally, I love this story because it just goes to show you that you kids can (and will) understand if you put it in terms they can understand – and that as adults, they’ll be better for you involving them in making hard decisions.
Finally, Challenge Yourself
To Save More
How much did you save last year?
How did you save?
If you saved in a 401k, raise your contribution percentage 1%
If you use a SEP or Roth IRA, increase your contributions by $10 each paycheck.
Or if you’re just putting money in a savings accounts, challenge yourself to earn some money off of that savings by opening an account with Betterment. (Read about why I love Betterment here)
However you save, make small changes that will be barely missed. They’re no-brainers, but can have a huge impact on your savings!
To Invest More
Scared of investing? The new year is the perfect time to start small with a Betterment account. This service allows for very small account opening balances, and will personalize your investments based on your tolerance for risk, goals, and savings rate.
It’s a very gentle introduction to investing that you can challenges yourself to get started with at Betterment.com.
To Pay Down Debt
Are you happy with how much debt you have?
If the answer is no, challenge yourself to pay off more in 2017. Whether it’s $5 more each month, or even greater numbers from $10 and into the $1,000s, no amount is too small or too large.
I suggest downloading my Marriage & Money workbook to prioritize your marriage while paying down debt and motivate each other by tracking your payments visually.
Get Marriage & Money here.
Or, set your own goal!
What would you like to see happen in 2017?
Do you finally want to take your honeymoon?
Upgrade your wife’s diamond?
Take that vacation you’ve always wanted?
Buy a new car for cash
Buy a new house?
Save for your children’s college?
Your hopes and dreams are highly personal – and no financial goal is wrong! Yes, I’m an advocate for healthy personal finances, but that doesn’t mean you have to live unhappily. No dream is too small or too big to save for!
For example, we have a bunch of savings goals:
- A new car ($10k)
- New tires ($700 in 2 years)
- Our 10-Year Anniversary Trip ($3k in 3 years)
- Camping Fund ($50/month)
- A driveway extension ($100/month)
- A nice camera ($2,000 total)
We have some silly things on here, some fun things, and some really practical things, which are all part of living, breathing, and saving!
…Or, Take 5 Minutes and Sync Your Accounts with Personal Finance Software
Don’t have a budget or know what you spent in 2016?
Thank your lucky stars we don’t live int eh 1950’s and sign up for my favorite (free!) tool: Personal Capital
This is what Matt and I personally use to manage our money, and we cannot recommend it highly enough. On a daily basis, we use it to track where our money is going, since it learns your preferences, where transactions go, and how to categorize specific amounts.
Then we use Personal Capital monthly to easily see where our money went, how much came in, and make changes where they’re needed.
But beyond the mundane, we use it for more exciting things: tracking debt payoff, managing investments, tracking our new worth, and even getting personalized investment and retirement advice.
Whatever you do, don’t wait to get a handle on your budget.
It’s easier, and more exciting than it sounds!
Increase Your 401k Contributions by 1%
One of the smartest financial moves you can make is to fully utilize your 401k.
Many employers provide a match for money you put into the account. If you’re not getting every penny of that match you can, then you’re essentially saying “no” to free money.
But, I understand if money is tight, and if that’s the case, just increase your contributions by 1%. I guarantee you won’t notice the money being gone, but your future (retired) self will thank you!
In fact, just to show you the power of 1%, I ran a quick calculation:
Say you’re 26, making $43,000 a year, and currently contributing 6% of your income to your 401(k). Your employer matches 4% of your salary. By sticking with these same contribution levels for 40 years, you would have $918,512.53 at retirement (assumes a 7% rate of return)
But, if you up your contribution percentage for 7% (plus employee match) at the beginning of one year, one time only, you would have $1,010,381,74.
That’s an extra $91,869.21 at retirement just for contributing an extra 1%
That’s the power of small changes (and compound interest) so don’t wait!
Oh, and if you’re curious about the impact small changes will have on your investments, check out this super simple calculator.
Open a Roth IRA
If you and your spouse’s income is less than $196,000 for 2017, you may be able to take advantage of another really cool investment tool: a Roth IRA.
It sounds super complicated, but it really isn’t.
You can open a Roth IRA in under 5 minutes with Betterment, and can contribute up to $5,500 to it in 2017 ($6,500 if you’re over 50).
But why would you want to?
Basically, you’ll pay a LOT less in taxes at retirement. I’ve laid out the math here: Everything You Need To Know About a Roth IRA in Terms You Can Understand, but it boils down to this: you’ll pay taxes now, rather than on the growth.
Meaning if you pay $5,500 into your Roth IRA in 2017, you’ll only pay taxes on the $5,500 now, instead of on the $83,359.51 that money could grow to by retirement.
And that savings will be in the thousands of dollars!
Check out Everything You Need to Know About a Roth IRA In Terms You Can Understand, and get started at Betterment.com
Determine Your Savings Goals
…And Set Up Accounts for Each One
If you skipped over that step earlier, scroll up a little bit and decide what you’re saving for in 2017. No goal is too small or too large.
Deciding is the first step, but now I want you to see it through by setting up accounts for each one.
And while both methods work, there are definitely pros and cons to each.
- Low fees
- Can earn interest
- Ability to name goal accounts
- Small management fees
- Could lose money if the market changes
- Takes time to transfer money
Capital One 360 Savings Accounts
- No fees
- Can have up to 26 accounts
- Instant transfers
- Can nickname accounts
- Very small interest rate
Personally, I’m willing to take the risk with Betterment accounts, but if you’re not, then Capital One Savings Accounts are definitely the way to go.
You can get started with Betterment here.
Or, sign up for Capital One 360 here.
Evaluate Your Insurance Needs
I’m a self-proclaimed personal finance nerd, but even I dread handling insurance.
And if I do, I’m betting you do too.
But like it our not, we all need to make sure that our insurance coverage is sufficient, as well as make sure that we’re not paying too much for it.
So with 2017 already here, if you don’t have time right now to shop insurance carriers, make it a priority in the next couple of months. Meet with your agent, get quotes online, or contact a broker to compare rates, coverage, and features that might not be available to you with your current insurer.
Make them earn your business!
If you want to learn more about what types of/how much insurance you need, check out The 6 Types of Insurance That Should Be a Part of Your Financial Plan for much more detail on the topic.
Clean Out Your Office
Whether you have a command center, mail pile, office, or box in the corner stuffed with receipts and documents, now is the time to make sense of it.
Why, you ask?
Because the new year means two things: taxes & preparing for next year.
As you start to gather up all the documents you’ll need for taxes, evaluate whether your system is working.
Can you find everything you need? Can you remember what it’s for? Can you make this process easier on yourself next year?
If the answer to any of those questions is “no” then find a better system for 2017!
Set Up 2017 Business Expense Folders
This one is just for you freelancers and business owners!
Receipts, invoices, and expenses can be impossible to keep track of if you don’t have a system, which is why I recommend that you set up physical and email folders for 2017 expenses now, before they get away from you.
As the year goes on, simply dump every expense document (paper or electronic) in said folders to make tax season that much easier next year!
Please don’t put this off – you’ll thank me when taxes roll around again.
Small Changes = Large Victories
The new year means a burst of energy for most of us, and if we’re smart, we’ll use that energy to put some positive changes in place that will benefit our finances this year, next year, and even into retirement!
Don’t underestimate the power of small changes.
Like it or not, even when you feel like you’re drowning, those small victories will come out of nowhere as big wins, and you’ll be thanking yourself you made them.
Get started today!
What small changes do you make during the new year? Share your thoughts in the comments – no change is too small!
This post may contain affiliate links. See my disclosures for more information.